The ratings agency lowered its long-term sovereign credit rating for T&T to ‘BBB+’ from ‘A-’, while at the same time stating that the outlook for the country was “stable”.

The report stated: “Low oil and gas prices in global markets, disruptions in domestic production (due to plant shutdowns for maintenance and infrastructure upgrades), and ongoing US dollar shortages from the banking system” have been the primary causes of the economic contraction in T&T and although the government has taken austerity measures to reduce fiscal imbalances, the agency expected that fiscal consolidation would be slower than anticipated and interest costs higher.

Commenting on the rationale for the downgrade, the report says: “The downgrade reflects further deterioration in T&T’s debt burden, including a higher-than-expected rise in net general government debt to GDP and the interest burden over 2017-2020.”

S&P pointed out that the net general government debt rose to 35 per cent of GDP in 2016, from 17.5 per cent of GDP in 2014, which reflects, “to a large extent, a significant downward revision of both nominal and real GDP in 2014 and 2015, increased open-market operations, and a weaker fiscal stance.”

According to S&P: “The interest burden has also risen, further constraining the government’s fiscal flexibility to adjust to adverse shocks. We now project the government’s interest payments will account for more than 5 per cent of revenue in 2017-2020 as a result of the increased debt stock and tightening in global monetary conditions.

“Although the government has less fiscal room to manoeuvre than before, T&T’s debt burden remains moderate and is narrowly exposed to exchange-rate and rollover risk as foreign currency-denominated external debt was only around 18 per cent of total debt at year-end 2016.

S&P said that it expected an uptick in energy sector activity and associated revenue in 2017.

“We expect domestic natural gas production to rise in 2017-2018 amid fewer planned plant shutdowns and as new gas fields come on stream, particularly from the start-up of the Juniper field facility in third-quarter 2017. We expect global oil and gas prices to slightly increase following the agreement between OPEC members to restrain oil supply. We expect the economic recovery to be tepid in 2017 and to gradually accelerate in 2018-2020,” the report said.

The report added that T&T faced two major challenges in creating long-term economic sustainability.

It said: “Obstacles to sustained long-term growth will persist without further structural reforms to increase productivity in the labour market and reduce bureaucracy in the public service.”

Discussing its assignment of a “stable” outlook, S&P said: “The stable outlook reflects our expectation that T&T’s economy will recover modestly in 2017-2020, on higher natural gas prices and increased gas production. We expect continuity in economic policies in the coming two years, including the government’s commitment to fiscal consolidation. We expect the rise in the debt burden to stabilize.”